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Hello all:
I have a question regarding asset allocation for a retirement fund which is a 457 Deferred Comp plan.

I am 40 years old, married with a our first child just on the ground. I am in the process of balancing my deferred comp plan which I max out yearly. Currently I have the following funds in my portfolio and the percentages reflect how I am going to balance out current values (100K)and for future contributions:

30% S&P 500 Index (Large cap blend)
25% Small/Mid cap Equity fund (Small/mid cap blend)
20% Russell 1000 Value Index (Large cap value)
15% International Equity Index (International stock)
10% Balanced Growth (Assest allocation)

I have intentional not chosen a bond fund.

My main question is " Does this seem like a reasonable allocation given the personal info above. I am a risk taker but not out to the vary extremes.

(In addition my wife also has the same plan and value with a bit of a different mix)
Thanks in advance for feedback.
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I am generally not in favor of fixed asset allocation. You need to be in the strongest and best funds, and right now the mid and small caps are leading, along with emerging markets and Japan.

Look at the charts to see that.

Also, don't think that something like an S&P index fund is particularly safe. Over the last 5 years a money market fund like VMFXX has outperformed VFINX, even with distributions reinvested, and the drawdown has been over 40%.



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grouse,

I suspect that if you ran your portfolio through Morningstar's X-Ray you'd find a lot of overlap in your funds. Not sure why you seem to be trying to overweight with small & medium cap blend of large cap value. The correlation among your funds is probably high, so you don't have nearly the diversification you think you have. If you really want to slice and dice, suggested implementations of the Coffee House portfolio have been posted that use Vanguard funds.

I think something simple like Vanguard's total stock market might be a better long-term choice for your domestic stocks. I'd increase the international stock to 20%, add 10% of Vanguard's REIT index, and 20-30% of Vanguard's intermediate or total bond fund, maybe blended 50/50 with TIPS fund. Make sure to reinvest dividends of the bond funds. If you don't have access to Vanguard through your plan, that is unfortunate, but look for equivalent funds in your plan. You'd end up with a more diversified portfolio with less risk and higher long-term return.

db
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Thanks for the info.

I also wanted to add one other piece of info and that is our mutual fund choices offered through the state (VA) are managed by State Street Global Advisors which I am not really familiar with.

Again any feedback regarding my question is much appreciated and thanks in advance.
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I'd reverse the weighting of S&P and International Equity.
You contribute to your 457 every payday, the same amount, right? This is deducted from your pay, before taxes.
Contributing the same amount every interval is called dollar cost averaging. You buy more shares when the price is lower.
If the price is the same all the time, there is no advantage.
Dollar cost averaging, over a period of years, works better the more volatile the price of what you are buying.
Probably the International Equity is the most volatile of your fund choices.
In a similar 457, my weighting of International Equity is 40%, and I'm a lot older than you are.
Best wishes, Chris
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Joel: Also, don't think that something like an S&P index fund is particularly safe. Over the last 5 years a money market fund like VMFXX has outperformed VFINX, even with distributions reinvested, and the drawdown has been over 40%.

You do understand the "Past performance is no indication of future behavior" comment, no?

I like VEXMX better that VFINX, partly for the reasons you have mentiond so often.

cliff
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I agree there's probably a good amount of overlap between your two large funds, which account for 50% of your assets, so you may want to think about that.

You may want to move some more to international, as suggested, and see if you have some other options, like REIT. Ignoring bonds mostly in your situation is probably a good idea, although do realize you have some in your balanced fund. And do remember you'll probably want to start moving some there eventually. The only other bonds I'd consider, would be high-yield/junk, which would add some diversification to your setup as well.

Basically I think you're on the right path. General aggressive allocation is:
50-70% domestic (including some mid/small)
15-25% foreign (including some small or emerg. markets)
5-10% bonds leaning junk
5-15% other for diversification (REITS, metals, sector funds if you wish)

I know your options are limited in this plan, but if you have more funds than what you're currently in (other than bonds that you're avoiding.

P.S. No plan is a good plan if you can't sleep well at night, so do what you're comfortable with. But hopefully we've pointed out the overlap that may allow you to sleep better with a few changes.

P.P.S. Ignore Joel, as it was once well said, he likes to p*** in other people's cornflakes.
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Personally I don't care for bond funds. Instead of bond funds, I'd do CDs or money market funds.

JLC
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I also wanted to add one other piece of info and that is our mutual fund choices offered through the state (VA) are managed by State Street Global Advisors which I am not really familiar with.

My 401k offers 3 index funds from State Street Global Advisors: S&P 500, Russell 2000 and MSCI EAFE. These funds are lower cost than the other choices in my 401k, which are all managed funds. My only gripe with the State Street 'Advisor' funds in my 401k is that there are no ticker symbols available for them, which means it's impossible to get any information from them other than what's available on my 401k website. For example, you can't include them in an allocation analyzer along with other funds, and to get NAVs on any given day I have to log into my 401k website.

Because I'm highly cynical, I manually track each of these funds against their respective index on a semi-monthly basis. There is always a slight discrepancy, as the index funds don't pay out dividends, so I have to assume they are simply included in a higher NAV. Therefore the NAVs of these funds usually slightly outpace the indexes they're tracking on an annual basis.

2old
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